China is looking to issue new guidelines to regulate environmentally friendly or green funds in order to control ‘greenwashing’ in the climate fund sector, Reuters has reported citing sources familiar with the matter.

The proposed rules are anticipated to be launched by the first half of next year.

They could bring substantial changes in China’s fast growing funds industry, which is currently dominated by the wishes of asset managers while deciding the nature of green investments, added the report.

Majority or some of the green funds that account for a large chunk of the 160 existing sustainable products in China could come under the new rules, which will compel such funds to remove the green tag from their names.

Currently, China’s green funds are regulated by wider investment rules that took effect in 2018 and do not have the obligation to use a classification tag.

Those funds managed $34bn in assets until the end of September this year, according to data from Morningstar, which collects environmental, social, and governance (ESG) fund data across the globe.

China’s funds regulator, Asset Management Association of China (AMAC), has formulated rules that will mandate mutual funds or exchange-traded funds to include as much as 60% of their assets under specific green investments group for making them suitable for sale as green products, told the sources.

China Securities Regulatory Commission (CSRC) will have to approve the AMAC rules, added the unnamed sources.

During the first nine months of 2022, altogether 43 climate-focused funds were launched in China, representing a surge of 30% compared to figures in the end of 2020.

Several global asset managers, including BlackRock and Fidelity International, which have overseas funds that comply with green standards, forayed into China in the past two years.